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Item5

Item 5 12.5 points

On January 1, 20X5, Pirate Company acquired all of the outstanding stock of Ship Inc., a Norwegian company, at a cost of $151,500. Ships net assets on the date of acquisition were 680,000 kroner (NKr). On January 1, 20X5, the book and fair values of the Norwegian subsidiarys identifiable assets and liabilities approximated their fair values except for property, plant, and equipment and patents acquired. The fair value of Ships property, plant, and equipment exceeded its book value by $18,500. The remaining useful life of Ships equipment at January 1, 20X5, was 10 years. The remainder of the differential was attributable to a patent having an estimated useful life of 5 years. Ships trial balance on December 31, 20X5, in kroner, follows:

	Debits			Credits
Cash	NKr	140,000
Accounts Receivable (net)		250,000
Inventory		290,000
Property, Plant, & Equipment		650,000
Accumulated Depreciation				NKr	140,000
Accounts Payable					84,000
Notes Payable					276,000
Common Stock					440,000
Retained Earnings					240,000
Sales					740,000
Cost of Goods Sold		340,000
Operating Expenses		150,000
Depreciation Expense		55,000
Dividends Paid		45,000
Total	NKr	1,920,000		NKr	1,920,000

Additional Information:

1. Ship uses the FIFO method for its inventory. The beginning inventory was acquired on December 31, 20X4, and ending inventory was acquired on December 15, 20X5. Purchases of NKr350,000 were made evenly throughout 20X5.
2. Ship acquired all of its property, plant, and equipment on July 1, 20X3, and uses straight-line depreciation.
3. Ships sales were made evenly throughout 20X5, and its operating expenses were incurred evenly throughout 20X5.
4. The dividends were declared and paid on July 1, 20X5.
5. Pirates income from its own operations was $250,000 for 20X5, and its total stockholders equity on January 1, 20X5, was $3,400,000. Pirate declared $150,000 of dividends during 20X5.
6. Exchange rates were as follows:

	NKr		$
July 1, 20X3	1	=	0.15
December 30, 20X4	1	=	0.18
January 1, 20X5	1	=	0.18
July 1, 20X5	1	=	0.19
December 15, 20X5	1	=	0.205
December 31, 20X5	1	=	0.21
Average for 20X5	1	=	0.20

Assume the U.S. dollar is the functional currency, not the krone. Required: Prepare a schedule providing a proof of the remeasurement gain or loss. For this part of the problem, assume that the Norwegian subsidiary had the following monetary assets and liabilities at January 1, 20X5:

Monetary Assets
Cash	NKr	15,000
Accounts Receivable (net)		190,000

Monetary Liabilities
Accounts Payable	NKr	105,000
Notes Payable		190,000

On January 1, 20X5, the Norwegian subsidiary has a net monetary liability position of NKr90,000.